Does public attention to biodiversity matter to stock markets?

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Biodiversity has become an important issue in recent years, attracting great public attention. Arguably, biodiversity risk can be treated as a risk factor that should be priced in stock markets. To examine this issue, this paper begins by constructing a biodiversity attention index (BAl) based on information provided by the Baidu search engine and then examines its impact on the returns of listed firms in China. Specifically, the BAl is added to a capital asset pricing model as an additional pricing factor, and then the model is used to analyse individual stock returns. By summarising the results from a bottom-up perspective, we find that BAl can affect stock returns to a certain extent and that the impacts are highly heterogeneous across sectors. The pricing power ofthe BAl increases over time, with a growing number of companies affected. Further investigation shows that younger, larger firms and firms with better financialor environmental performance tend to be less sensitive to the BAl. Overall, this study provides important evidence to understand biodiversity-finance link ages and further highlights the need to incorporate into financial practices public attention towards environmental issues.